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IRS Per Diem Rates For Post-September 30 Travel Unchanged

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The IRS has issued Notice 2012-63, which sets forth the simplified per diem rates that taxpayers may use to reimburse employees for expenses incurred during business travel after September 30, 2012. The high-low per diems for the October 2012 through December 2013 period remain unchanged from last year’s annual update, at $242 for high-cost localities and $163 for all other localities. The list of high-cost localities also remains the same. Additionally, the IRS has highlighted that certain expenses are no longer included in the definition of incidental expenses.

Per diem rates

In lieu of substantiating actual travel-related meal and lodging costs, the IRS provides optional per diem allowances, which employers and employees are deemed to have substantiated by adequate records or other sufficient evidence. The per diem amounts also satisfy the requirement that employees provide an adequate accounting to the employer of meal and lodging expenses.

Although the simplified per diem rates are helpful, many employers nevertheless require employees to submit monthly expense reports substantiating the actual cost of travel, meals and other expenses. This may be done, for example, because the actual expense method gives the business owner a more accurate picture of the true travel costs.

Incidental expenses

Employees may also deduct certain costs for incidental expenses incurred during business-related travel. The rate for the incidental expenses-only deduction provided in Notice 2012-63 is $5 per day for post-September 30, 2012 travel. The rate is unchanged from the previous rate.

IRS guidance on what constitutes an “incidental expense” follows the federal travel regs issued by the General Services Administration (GSA) in 2011 describe incidental expenses as fees and tips given to porters, baggage carriers, bellhops, hotel maids, stewards or stewardesses and others on ships. Transportation between places of lodging or business and places where meals are taken and the mailing cost associated with filing travel vouchers and payment of employer-sponsored charge card billings are excluded from the GSA definition of incidental expenses. Also as a result of the revised GSA regulations, taxpayers using per diem rates may separately deduct or be reimbursed for transportation and mailing expenses, the IRS explained.

High-low method

There are no changes in the list of high-cost localities for 2013 from the list of high-cost localities in Notice 2011-81. The IRS-approved per diem rate for high-cost areas is $242 ($177 for lodging and $65 for meals and incidental expenses). The IRS-approved per diem rate for all other areas is $163 ($111 for lodging and $52 for meals and incidental expenses). The rates apply to per diem allowances paid for travel after September 30, 2012.

Transportation industry per diem

Taxpayers that used the federal meal and incidental expense rates or the special transportation industry rates during the first nine months of 2012 for an individual cannot change to the other method for the individual until after January 1, 2013. After September 30, 2012, taxpayers in the transportation industry paying a per diem only for meals and incidental expenses may treat $59 as the meals and incidental expense rate for all localities within the CONUS and $65 as the meals and incidental expense rate for all localities outside the CONUS.